UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-23223
CURAGEN CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 06-1331400 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 555 Long Wharf Drive, 11th Floor, New Haven, Connecticut | 06511 | |
| (Address of principal executive office) | (Zip Code) |
Registrant’s telephone number, including area code: (203) 401-3330
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes x No ¨
The number of shares outstanding of the Registrant’s common stock as of July 30, 2004 was 50,084,106.
CURAGEN CORPORATION AND SUBSIDIARY
FORM 10-Q
INDEX
| Page | ||||||
| PART I. Financial Information |
||||||
| Item 1. | Financial Statements | |||||
| Consolidated Balance Sheets, June 30, 2004 (unaudited) and December 31, 2003 | 3 | |||||
| Consolidated Statements of Operations, for the Three and Six Months Ended June 30, 2004 and 2003 (unaudited) | 4 | |||||
| Consolidated Statements of Cash Flows, for the Six Months Ended June 30, 2004 and 2003 (unaudited) | 5 | |||||
| Notes to Consolidated Financial Statements (unaudited) | 6 – 9 | |||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 – 31 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 31 | ||||
| Item 4. | Controls and Procedures | 32 | ||||
| PART II. Other Information |
||||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 33 | ||||
| Item 6. | Exhibits and Reports on Form 8-K | 33 – 34 | ||||
| 35 | ||||||
| 36 | ||||||
CURAGEN CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share data)
| June 30, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 54,926 | $ | 42,843 | ||||
| Short-term investments |
109,321 | 72,402 | ||||||
| Marketable securities |
210,863 | 228,396 | ||||||
| Cash and investments |
375,110 | 343,641 | ||||||
| Income taxes receivable |
613 | 429 | ||||||
| Other current assets |
104 | 26 | ||||||
| Prepaid expenses |
2,464 | 1,757 | ||||||
| Total current assets |
378,291 | 345,853 | ||||||
| Property and equipment, net |
22,132 | 23,540 | ||||||
| Intangible and other assets, net |
15,082 | 7,564 | ||||||
| Total assets |
$ | 415,505 | $ | 376,957 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 2,213 | $ | 4,661 | ||||
| Accrued expenses |
5,310 | 3,671 | ||||||
| Accrued payroll and related items |
1,857 | 1,864 | ||||||
| Interest payable |
4,875 | 3,750 | ||||||
| Deferred revenue |
2,674 | 3,010 | ||||||
| Current portion of obligations under capital leases |
— | 204 | ||||||
| Other current liabilities |
1,944 | 2,383 | ||||||
| Total current liabilities |
18,873 | 19,543 | ||||||
| Long-term liabilities: |
||||||||
| Convertible subordinated debt |
240,000 | 150,000 | ||||||
| Accrued long-term liabilities |
1,514 | 1,500 | ||||||
| Total long-term liabilities |
241,514 | 151,500 | ||||||
| Commitments and contingencies |
||||||||
| Minority interest in subsidiary |
5,438 | 8,233 | ||||||
| Stockholders’ equity: |
||||||||
| Common Stock; $.01 par value, issued and outstanding 50,068,232 shares at June 30, 2004, and 49,896,622 shares at December 31, 2003 |
501 | 499 | ||||||
| Additional paid-in capital |
486,345 | 485,531 | ||||||
| Accumulated other comprehensive (loss) income |
(1,256 | ) | 1,524 | |||||
| Accumulated deficit |
(335,723 | ) | (289,492 | ) | ||||
| Unamortized stock-based compensation |
(187 | ) | (381 | ) | ||||
| Total stockholders’ equity |
149,680 | 197,681 | ||||||
| Total liabilities and stockholders’ equity |
$ | 415,505 | $ | 376,957 | ||||
See accompanying notes to consolidated financial statements
3
CURAGEN CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Revenue: |
||||||||||||||||
| Grant revenue |
$ | 358 | $ | — | $ | 358 | $ | — | ||||||||
| Collaboration revenue |
916 | 1,695 | 2,531 | 3,639 | ||||||||||||
| Total revenue |
1,274 | 1,695 | 2,889 | 3,639 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Grant research |
100 | — | 100 | — | ||||||||||||
| Research and development |
24,591 | 18,388 | 39,732 | 32,848 | ||||||||||||
| General and administrative |
4,946 | 4,823 | 9,803 | 9,773 | ||||||||||||
| Restructuring and related charges |
— | 2,888 | — | 2,888 | ||||||||||||
| Total operating expenses |
29,637 | 26,099 | 49,635 | 45,509 | ||||||||||||
| Loss from operations |
(28,363 | ) | (24,404 | ) | (46,746 | ) | (41,870 | ) | ||||||||
| Interest income |
2,016 | 2,078 | 4,052 | 4,411 | ||||||||||||
| Interest expense |
(3,345 | ) | (2,464 | ) | (6,222 | ) | (4,939 | ) | ||||||||
| Loss on extinguishment of debt |
— | — | (294 | ) | — | |||||||||||
| Loss before income taxes and minority interest in subsidiary loss |
(29,692 | ) | (24,790 | ) | (49,210 | ) | (42,398 | ) | ||||||||
| Income tax benefit (expense) |
90 | (117 | ) | 184 | — | |||||||||||
| Minority interest in subsidiary loss |
1,410 | 1,480 | 2,795 | 2,829 | ||||||||||||
| Net loss |
$ | (28,192 | ) | $ | (23,427 | ) | $ | (46,231 | ) | $ | (39,569 | ) | ||||
| Basic and diluted net loss per share |
$ | (0.57 | ) | $ | (0.48 | ) | $ | (0.93 | ) | $ | (0.80 | ) | ||||
| Weighted average number of shares used in computing basic and diluted net loss per share |
49,875 | 49,234 | 49,839 | 49,195 | ||||||||||||
See accompanying notes to consolidated financial statements
4
CURAGEN CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Six Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (46,231 | ) | $ | (39,569 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
4,875 | 4,132 | ||||||
| Non-monetary compensation |
233 | 487 | ||||||
| Stock-based 401(k) employer plan match |
405 | 423 | ||||||
| Loss on extinguishment of debt |
294 | — | ||||||
| Minority interest |
(2,795 | ) | (2,829 | ) | ||||
| Changes in assets and liabilities: |
||||||||
| Income taxes receivable |
(184 | ) | 856 | |||||
| Other current assets |
(78 | ) | 139 | |||||
| Prepaid expenses |
(707 | ) | 512 | |||||
| Intangible and other assets, net |
(25 | ) | 5 | |||||
| Accounts payable |
(2,448 | ) | 1,954 | |||||
| Accrued expenses |
1,639 | 47 | ||||||
| Accrued payroll and related items |
(7 | ) | (80 | ) | ||||
| Interest payable |
1,125 | — | ||||||
| Deferred revenue |
(336 | ) | (292 | ) | ||||
| Other current liabilities |
(439 | ) | 2,301 | |||||
| Accrued long-term liabilities |
14 | — | ||||||
| Net cash used in operating activities |
(44,665 | ) | (31,914 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Acquisitions of property and equipment |
(2,155 | ) | (3,278 | ) | ||||
| Acquisitions of non-perpetual licenses |
(302 | ) | (491 | ) | ||||
| Loans to employees, net of repayments |
(40 | ) | 17 | |||||
| Convertible loan to collaborator |
(5,000 | ) | — | |||||
| Net (outflows) inflows from purchases and maturities of short-term investments |
(36,918 | ) | 66,274 | |||||
| Net inflows (outflows) from purchases and maturities of marketable securities |
14,752 | (36,803 | ) | |||||
| Net cash (used in) provided by investing activities |
(29,663 | ) | 25,719 | |||||
| Cash flows from financing activities: |
||||||||
| Payments on capital lease obligations |
(204 | ) | (1,076 | ) | ||||
| Proceeds from exercise of stock options |
372 | 197 | ||||||
| Proceeds from issuance of convertible debt |
110,000 | — | ||||||
| Payment for extinguishment of debt |
(20,000 | ) | ||||||